Commercial Security Deposits in Saudi Arabia
Understand the strict 5% cap on commercial security deposits under the Saudi Real Estate Brokerage Law and how Ejar handles commercial funds.
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In many Western jurisdictions, commercial security deposits are entirely unregulated, allowing landlords to demand six months or a year's worth of rent upfront to secure a prime retail location. Saudi Arabia takes a vastly different approach.
Commercial Bond Process in national
Negotiate Bond
Agree on bond type and amount during commercial lease negotiations.
Collect Security
Receive bank guarantee or cash bond before tenant takes possession.
Hold During Tenancy
Keep the bond securely for the full commercial tenancy duration.
Release or Claim
Return bond at lease end if no outstanding obligations, or make claims for documented breaches.
The 5% Commercial Deposit Cap
Under the recent updates to the Real Estate Brokerage Law overseen by the Real Estate General Authority (REGA), security deposits for both residential and commercial properties are strictly capped at 5% of the total lease value.
- Example: If a commercial lease for office space totals 1,000,000 SAR over a 5-year term, the maximum allowable security deposit the landlord can demand is 50,000 SAR.
- Advance Rent: Landlords frequently require large sums upfront to mitigate risk on commercial build-outs. Any amount collected over the 5% limit must legally be structured as an advance payment of rent, not as a held security deposit.
Ejar Custody for Commercial Deals
Just like residential leases, commercial leases must utilize the Ejar platform.
- Payment: The commercial tenant (a registered business entity with a Commercial Registration number) transfers the 5% security deposit electronically via the Ejar portal during the contract signing phase.
- Custodial Holding: The funds are not held in the landlord's private operating account. Ejar acts as the neutral escrow agent, holding the deposit securely.
- End of Term: When the commercial lease terminates, the system automatically begins the refund process to the business's linked electronic wallet, less any documented, agreed-upon deductions.
Deductions for Commercial Damages
A commercial landlord may submit a claim through Ejar to deduct funds from the security deposit for:
- Severe damage to the shell or structure of the building.
- Unpaid, contractually obligated utility bills (SADAD bills).
- Failure to return the property to its original state (if the contract explicitly required the tenant to demolish their custom build-out upon exit).
Normal Wear and Tear
As in residential leases, commercial landlords cannot deduct for standard wear and tear inherent to operating a business (e.g., minor scuffs on warehouse floors or faded paint in a high-traffic retail zone).
Resolving disputes If a business disputes the landlord's deduction claim, the standard process applies:
- REGA experts review the photographic evidence and the initial Ejar handover report.
- If mediation fails, the dispute is escalated to the competent commercial or general courts for a final, binding ruling.
Given the low 5% cap, commercial landlords heavily rely on strict vetting of a company's financial health rather than massive deposits.
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